EU may see ‘tidal change’ on climate deadlines – German gas lobby group chair

• EU may see readjustment of climate deadlines
• Policy changes anticipated after EU elections could support coal to gas switch
• Building importing LNG capacity needed for security of supply

LONDON (ICIS)–Europe’s long-term energy strategy could witness a tidal change in 2024 as a new administration might readjust climate targets, Timm Kehler, the chair of German gas advocacy group Zukunft Gas said.

Speaking to ICIS, Kehler said the EU’s parliamentary elections in June may usher in parties with a more conservative approach including on energy policies.

“In broad brushes, I expect a more realistic approach and a readjustment of targets.

“We will not see a rollback in reaching climate neutrality. There is broad consensus [on this] in different camps but we may see a more effective approach to energy policies with regards to carbon reduction, which will create tailwind for coal to gas switching,” he said.

Nevertheless, Kehler said Europe’s goal for climate neutrality will remain although the deadlines for achieving these may be pushed back.

“My personal expectation is that we will not see an adjustment in targets but in intermediate deadlines,” he added.

MORE CAPACITY

Kehler pointed out there was a pressing need to get more clarity on Germany’s natural and green gases strategy to inform the direction the country will take in the longer term.

Germany faces the phaseout of its coal capacity, which means it should replace it with 20GW of baseload capacity to back up its renewable sources of generation.

Right now, discussions focus on building some 10GW of gas-fired power plants, which might switch to hydrogen by the end of the decade.

Kehler said Germany should be agnostic about the ‘colour’ of hydrogen and consider all options on the table including electrolysed hydrogen or hydrogen produced from natural gas.

Germany is currently in talks with Norway to create two pipelines – one for hydrogen and another for carbon – which could be stored in dedicated carbon capture systems developed in the Scandinavian country.

A similar debate is also taking place with regards to the fuel in Germany’s residential heating mix, as 50% of it is now covered from natural gas and another 20% from oil.

Decisions related to the fuel mix in electricity and heating capacity will largely determine the extent to which Germany will need natural gas in the mid to long-term.

STRANDED ASSETS

Right now, the outlook covers a broad range, with some expecting demand to increase by 20% on current levels while others insisting it would shrink 30% below Germany’s annual demand of 70billion cubic meters.

German industrial consumption has been fallen more than than 20% in the last two years compared to the 2017-2021 average, raising fears that new LNG regasification capacity that is being developed would be stranded within a few years.

The country has already brought online 18bcm/year of regasification capacity and plans to reach 55bcm in coming years.

Nevertheless, Kehler is adamant the capacity, including Germany’s land-based terminals, would have to be built regardless of the demand outlook.

He said the utilisation rate of the terminals which have been commissioned was already higher than the average of 20-30%, which is the benchmark for mature terminal markets such as Japan or South Korea.

Kehler said Europe should take a similar approach, focusing on the importance of security of supply rather than remaining concerned about stranded assets.

NEUTRALITY CHARGE

He also insisted EU member states should work closer together and remain mindful of the principle of solidarity.

Zukunft Gas has aligned with European gas advocacy group, Eurogas, in expressing disagreement with a decision by the German government to impose a neutrality charge to recoup the cost of expensive gas for storage injections in 2022.

“[…] we are not happy with the situation that we see market fragmentation about this. This behaviour could spread out to other EU countries and stop the further integration of gas markets.”

The tax, currently at €1.86/MWh, has made exports from Germany to neighbouring EU countries expensive, hampering landlocked countries such as Austria and the Czech Republic from securing volumes from the west and diversifying away from Russian imports.

Kehler said there were other options that could be considered but insisted the question was how much would politicians accept to see German voters pay for the gas.